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Export Initiatives & Partnerships Division,

Phone: +9714-4455333; Fax: +9714-4455355 E-mail: info@dedc.gov.ae; Web: www.dedc.gov.ae

PO Box 123336, Dubai – UAE

Primary Information Sources: Prepared – July, 2020

UNITED ARAB EMIRATES SECTOR CAPABILITY REPORT

PHARMACEUTICALS & HEALTHCARE EIP/MTR/039/07/2020

Disclaimer: While all attempts have been made to collect & present accurate information, DE makes no warranty, express or implied, as to the fitness, appropriateness of the above information for a particular purpose, or assumes any legal liability for the accuracy or usefulness of any contained information. All 3rd. party information sourced are either through subscriptions of the organization or information freely available on the internet, with no DE claims to such information, as its own.

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TABLE OF CONTENTS

# Description Page

1 Introduction/ Key View 3

2 COVID-19 Impact 3

2 SWOT 5

3 Industry Forecast 5

4 Regulatory Development 9

5 Market Overview 9

6 Competitive Landscape 10

7 Export Potential & Top Import Markets for

Pharmaceutical Products 12

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Introduction/Key View Key View: As one of the largest, most developed economies in the Middle East, the UAE's pharmaceutical

market presents significant growth opportunities for multinational drugmakers. The expansion of private healthcare coverage and the modernization of health infrastructure will contribute to drive prescription market growth. Stricter pricing controls, generic drug substitution and an unfavourable demographic profile will cause headwinds to firms over the coming years.

Headline Expenditure Forecast Pharmaceuticals: AED21.7bn (USD5.9bn) in 2019 to AED22.7bn (USD6.2bn) in 2020; +4.5% in local

currency terms and +4.6% in US dollar terms. Forecast revised upwards from previous quarter Healthcare: AED56.2bn (USD15.3bn) in 2019 to AED61.7bn (USD16.8bn) in 2020; +9.8% in local

currency terms and +9.9% in US dollar terms. Forecast revised upwards from previous quarter.

• On July 7, it was reported that Mulk Healthcare is launching its digital hospital project. Launching as a downloadable app this August, the Mulk E-Hospital will reportedly offer a range of healthcare services, including initial doctor-consultations, and posthospital care.

• On June 17, it was reported that Mediclinic Middle East has launched its first comprehensive robotic surgery programme. The subsidiary of Mediclinic International has introduced the da Vinci Xi HD 4 arm robotic system to its Mediclinic City Hospital in Dubai.

• On June 12, the head of Dubai Science Park (DSP) stated that at least 60-80% of the essential medicines consumed in the UAE can be manufactured locally. The DSP is a science-focused community hub to over 350 science, energy and environmental sector companies.

• On June 1, Gulf Pharmaceutical Industries (Julphar), a pharmaceutical manufacturer based in Ras Al Khaimah, launched a AED500mn rights issue to improve its capital and debt profile.

Risk/Reward Index The UAE's position as one of the largest pharmaceutical markets in MENA results in the country scoring 66.8 out of 100 in Fitch Solution's Innovative Pharmaceuticals RRI. However, an unfavourable demographic profile as well as risks emanating from the widespread use of cost-containment initiatives across the region will be heeded by innovative drugmakers in the UAE. Economic View Fitch Solutions, Inc. have revised our 2020 UAE current account balance forecast to a deficit of 5.4% of GDP from a surplus of 6.4% previously. This is well below the 10-year average surplus of 8.7% of GDP. Our forecast revision is underpinned by declining oil and non-oil exports. The current account has historically never seen all three goods trade components decline simultaneously, which has brought our 2020 goods trade balance projection to AED80.6bn, well below its AED265.7bn five-year average. Net services will also contribute to the current account deficit as a result of an international flight ban and the expo delay. Although Fitch Solutions, Inc. are expecting a sharp current account deficit this year, they do not anticipate this deficit to persist over the longer term. In fact, they expect the current account to post a surplus of 2.5% of GDP in 2021.

Covid-19 Impact Global Summary: The coronavirus outbreak will have an extreme impact on the provision of medical products and services globally. Changes to our healthcare expenditure projections in 2020 include key economies in the Asia Pacific, Europe and North America that are most affected by the pandemic. Forecast revisions to spending on medical products and services in emerging markets have also been made, although they are smaller in nature due to reduced government fiscal capacity. In all countries, the coronavirus outbreak is driving greater spending on health personnel, infrastructure, administration, medical equipment and consumables. On the other hand, the disease is reducing the uptake of high margin products such as patented pharmaceutical and innovative medical devices as healthcare resources are re-directed to treating Covid-19 patients in intensive care units. Dozens of clinical trials of potential interventions are currently underway. Despite this, an antiviral medicine or vaccine that treats or protects against coronavirus is unlikely to be made available within the next year, given the lengthy drug development process and significant manufacturing scaling-up challenges. Due to the shutdown of social and industrial activity in parts of China, and the consequential impact on the production of active pharmaceutical ingredients, certain medical products are likely to be in short supply,

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which will have an impact on downstream healthcare provision. There will also be more protectionism, with particular countries seeking to restrict the export of medical products they see as critical in restricting the spread of the coronavirus. Country-Specific Impact As of July 13 2020, the UAE has reported 54,854 cases of Covid-19 while conducting the eighth highest number of tests per capita globally and the 11th most number of total tests. The UAE has thus far implemented only a curfew from late April, which has since been eased as of late June. This comes despite predictions in March that the number is expected to increase given that the country is a major travel hub and a significant portion of its workforce are expatriates who maintain strong links with foreign countries. Nonetheless, high urbanisation levels could also be conducive to the spread of the virus. So far, the country has responded by advising citizens to not travel abroad, closing down schools for four weeks, and cancelling large scale entertainment events. Gulf States are well positioned to fight Covid-19 but some risks remain. Due to the significant investment in healthcare infrastructure and technology, Gulf Cooperation Council countries are well positioned to effectively respond to the health needs of their population that will arise from the Covid-19 outbreak. In contrast, other Middle East and North Africa countries whose healthcare systems are already marred by a number of issues may find it more difficult to cope with a swollen number of patients. The impact of Covid-19 on global pharmaceutical supply chains could affect medicine supply in the UAE. China ranks first worldwide in output of several bulk active pharmaceutical ingredients (APIs) including penicillin and vitamins. These APIs are key starting materials and are used in everything from vitamin tablets to hormone injections, blood pressure medication and life-saving antibiotics. Moreover, it is noteworthy that the Hubei province, where the Covid-19 originated, is a major production hub of APIs. Although pharmaceutical companies generally hold excess stock of medicines in order to be able to respond to emergency and/or unexpected situations, a protracted disruption to global pharmaceutical supply chains will inevitably affect the UAE market and pose downside risks to its sustained growth. Fitch Solutions, Inc. calculate the UAE pharmaceutical market to have reached a value of AED21.7bn (USD5.9bn) in 2019, representing 38.6% of healthcare expenditure and 1.4% of GDP. Fitch Solutions, Inc. expect local currency growth of 4.5% (4.6% in US dollar terms) in 2020. By 2024, they forecast drug expenditure to reach a value of AED26.7bn (USD7.3bn), resulting in a compound annual growth rate (CAGR) of 4.2% in local currency terms and 4.3% US dollar terms. Over our 10-year forecast, they expect sales to reach AED32.2bn (USD8.8bn) with a CAGR of 4.0% in both local currency and US dollar terms. By 2024, they also forecast per capita drug spending to rise to USD710, up from USD605 in 2019. Fitch Solutions, Inc. calculate that the UAE's health expenditure reached a value of AED56.2bn (USD15.3bn) in 2019. This includes healthcare expenditure from the seven emirates in addition to their contribution to the federal budget. Fitch Solutions, Inc. expect a 9.8% y-o-y increase in local currency terms and 9.9% in US dollar terms for 2020. Fitch Solutions, Inc. forecast spending to rise to AED89.2bn (USD24.3bn) by 2024, which translates to a local currency and US dollar compound annual growth rate of 9.7%. Over our 10-year forecast to 2029, health expenditure is expected to rise to AED139.3bn (USD38.0bn). Overall healthcare spending is expected to account for 6.9% of the country's GDP by 2029, increasing gradually from 3.7% in 2019. Latest Coronavirus-Specific Updates • On July 7, the UAE announced that it plans to test 2mn people, or about 20% of the population, for SARS-

CoV-2 over the next two months after the infection rate climbed again following the lifting of restrictions. • On June 26, it was announced that two of the largest private hospital groups in the UAE have made an

FDA-authorised Covid-19 serology test available to the public. • On June 25, it was announced that Israeli and UAE companies have partnered in an attempt to ti fight

Covid-19 in the region. • It has been reported that hospitals and clinics are facing a significant loss of revenue because of a sharp

drop in outpatient visits for non-Covid-19 ailments and in the number of elective surgeries getting done at healthcare facilities across the UAE.

• On April 15 2020, the Sharjah Economic Development Department issued a notifications to restrict the movement of workers to other emirates.

• On April 15, 2020, Dubai’s Covid-19 Command and Control Centre announced the UAE's first full genome sequencing of the virus. The sequencing helps understanding how the virus spreads, which can also inform measures to control the outbreak.

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• In April 2020, it was announced that a new initiative to support low-income families affected by the Covid-19 pandemic has been rolled out by the Family Development Foundation. Apart from social protection, it will also offer them psychological help and facilitate access to services of organisations and agencies.

Source: Fitch Solutions, UAE Pharma & HealthCare Report, Q4, 2020

SWOT Strengths

• One of the more economically developed and diverse markets in the Middle East, with strong healthcare infrastructure.

• Strong patented drug market, largely as a result of the country's traditional wealth and a preference for the latest medicines.

Weaknesses • Although improving, domestic patent law is yet to attain the highest international standards. • Globally small local manufacturing sector focused on inexpensive, basic medicines. The market is

heavily reliant on imports, in particular at the hi-tech end of the scale - although this is improving. Opportunities

• The expanding outbreak of Covid-19 in the UAE will have a profound impact on the country’s healthcare industry, positively impacting activity across the sector in 2020.

• Emphasis on fast-tracking innovative medicines and orphan drugs. • Substantial investment in the healthcare sector, with large projects, such as the Dubai Healthcare

City and DuBiotech, encouraging foreign direct investment. Drug approval times are moving in line with that of developed markets.

• Leveraging excellent relations with countries like USA, India, China etc. to serve as a hub for the region (Dubai Exports)

Threats • The Covid-19 outbreak could lead to higher public sector healthcare expenditure. • Expansion of government cost-containment measures - most notably the implementation of

extensive price cuts - is threatening to slow market development. • Over-reliance on imported raw materials. • Spillover effects or consequences from regional political instability.

Industry Forecast Pharmaceutical Market Forecast Key View: Despite risks associated with restrictive pricing, the pharmaceutical sector will remain among the most attractive in the Middle East for prescription medicine sales and foreign drugmaker investment. The increasing popularity of branded generic products will serve to bolster generic drug expenditure, while the country's regulatory system is becoming more accepting of high value, innovative medicines. Structural Trends Fitch Solutions, Inc. forecast the UAE pharmaceutical market to have reached a value of AED21.7bn (USD5.9bn) in 2019, representing 38.6% of healthcare expenditure and 1.4% of GDP. Fitch Solutions, Inc. expect growth of 4.5% y-o-y in local currency terms and 4.6% in US dollar terms in 2020 with the market reaching a value of AED22.7bn (USD6.2bn). By 2024, they forecast drug expenditure will reach a value of AED26.7bn (USD7.3bn), resulting in a compound annual growth rate (CAGR) of 4.2% in local currency terms and 4.3% in US dollar terms. By 2024, they also forecast per capita drug spending to rise to USD710, up from USD604 in 2019. Fitch Solutions, Inc. expect drug expenditure will be worth AED32.2bn (USD8.8bn) by 2029, which equates to a local currency and US dollar 10-year CAGR of 4.0%, with most of the value development driven by population growth and a changing disease profile, but also partly by the use of modern medicines, such as biotechnology drugs. By the end of the forecast period, they calculate the pharmaceutical market will account for 1.6% of the UAE's GDP, up from 1.4% in 2019. The UAE has strong long-term potential on account of growing demand for the treatment of lifestyle diseases and the expansion of comprehensive health insurance. For instance, despite

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the UAE government reducing the prices of more than 500 medicines for chronic diseases including diabetes, hypertension, cardiovascular, central nervous system and respiratory diseases as well as some paediatric problems, the country's pharmaceutical market will continue to see strong growth in the coming years (see, 'Pharmaceutical Spending In The UAE Will Remain Robust Despite Risks From Price Cuts And Covid-19' 9 March). This due to its high health expenditure per capita, its preference for highvalue innovative medicines, continuous investments in developing and expanding healthcare infrastructure, and the high percentage of urban population. Healthcare Market Forecast Key View: The UAE's healthcare market is well established, and a combination of public and private investments will drive expenditure in the sector over the coming decade. This will create strong opportunities for medical tourism, international healthcare companies and foreign drugmakers in the UAE. Structural Trends Fitch Solutions, Inc. calculate that the UAE's health expenditure reached a value of AED56.2bn (USD15.3bn) in 2019. This includes healthcare expenditure from the seven emirates in addition to their contribution to the federal budget. Fitch Solutions, Inc. expect this figure to reach AED61.7bn (USD16.8bn) in 2020, a 9.8% y-o-y increase in local currency terms and 9.9% in US dollar terms. Fitch Solutions, Inc. forecast spending to rise to AED89.2bn (USD24.3bn) by 2024, which translates to a local currency and US dollar compound annual growth rate of 9.7%. Over our 10-year forecast to 2029, health expenditure is expected to rise to AED106.9bn (USD29.1bn). Overall healthcare spending is expected to account for 6.0% of the country's GDP by 2029, increasing gradually from 3.7% in 2019. Government commitment to the healthcare sector is one of the key drivers of growth within the UAE's healthcare market, particularly given that public spending accounts for over two thirds of overall healthcare expenditure. In the 2020 federal budget, a total of AED61.0bn was approved for public spending, up only 1.2% from AED60.3bn from the 2019 budget. While this does not constitute total government expenditure in the UAE, which derives from overall spending at the respective Emirati level, it is, nonetheless, a solid indicator of the UAE's fiscal stance. As such, the federal government has made fiscal consolidation a priority over the past two years, efforts which have somewhat cushioned the impact of much lower oil prices. Improving the country's healthcare service makes up a sizeable portion of the national agenda - with a key priority being to reduce the prevalence of chronic diseases. Highlighting this, over 38% of the 2020 budget allocation goes towards social services, and 6.9% is allocated to the healthcare sector at AED4.9bn. While the UAE government currently funds the majority of total health expenditure, the public sector's share is expected to fall slightly over our forecast period to 58.6% in 2029 as healthcare privatization grows at a faster rate. Private healthcare expenditure will continue to be driven by the influx of medical tourists and the roll-out of compulsory health insurance, particularly in Dubai and Abu Dhabi. Hosting the World Expo 2020 should also raise the UAE's appeal as a tourist destination, bringing benefits to the healthcare sector in its wake. Despite this, healthcare will remain a priority sector for the UAE government. The gradual rebound in oil prices pose an upside risk to the public sector's contribution. Prescription Drug Market Forecast Key View: Prescription medicines will continue to hold a significant proportion of the UAE's total pharmaceutical expenditure. Prescribed medicine sales will be driven by the country's increasing population and growing chronic disease burden, with risks in the form of pricing controls and the growth of OTC medicines somewhat limited over the near term. Structural Trends Prescription drug market spending could increase from AED18.8bn (USD5.1bn) in 2019 to AED19.7bn (USD5.4bn) by 2020. Through to 2024, the sector is expected to experience a compound annual growth rate (CAGR) of 4.6% in local currency terms and US dollars terms, reaching AED23.6bn (USD6.4bn). Over the 10-year forecast to 2029, expenditure is expected to reach a value of AED28.8bn (USD7.9bn), growing at a CAGR of 4.4% in local currency and US dollar terms. Patented drugs will account for 76.9% of the prescription drug market by 2029, while generic drugs will occupy a smaller share of 23.1% by this time. The UAE's prescription drug sector forms the largest segment of the overall pharmaceutical market. Prescribed medicine sales will continue to be driven by the country's increasing population and growing chronic disease burden. Despite the downside risks presented by the regional price harmonisation process, drug price cuts and the likelihood of the government implementing further healthcare cost efficiencies, they believe the UAE will remain one of the region's most-attractive markets for innovative and generic

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drugmakers. Despite the February 2020 reduction of prices for more than 500 medicines and Covid-19, they still expect continued strong growth, highlighting the UAE pharmaceutical market's resilience (see 'Pharmaceutical Spending In The UAE Will Remain Robust Despite Risks From Price Cuts And Covid-19', March 9). Patented Drug Market Forecast Key View: The UAE's patented drug sector will remain attractive despite the push towards generic drug prescription. While the increasingly popularity of generics will gradually erode patented medicines' market share over a multiyear timeframe, the UAE will remain a key market for innovative medicine launches in the Middle East - underpinned by a variety of industry, demographic and epidemiological factors. Structural Trends Patented medicine spending is expected to grow from AED14.7bn (USD4.0bn) in 2019 to AED15.4bn (USD4.2bn) by 2020. By 2024, Fitch Solutions, Inc. estimate that patented drug sales will be worth AED18.3bn (USD5.0bn), equating to a compound annual growth rate (CAGR) of 4.4% in local currency terms and 4.5% in US dollar terms. In 2019, Fitch Solutions, Inc. estimate that patented drugs accounted for 78.2% of the prescription market and 67.7% of the total drug market. In 2029, patented medicine sales will reach AED22.2bn (USD6.0bn), equating to a local currency and US dollar CAGR of 4.2%. By this time, high-value drug sales will account for 68.9% of all drug spending and 76.9% of prescription drug spending. Despite patent expirations and some moves toward cost-containment, demand for patented drugs will continue to be stimulated by, a wealthy population, brand loyalty, the creation of the common Gulf Cooperation Council market, strong healthcare provision and quality, the introduction of novel treatments for long-term and chronic diseases and compulsory expatriate insurance. A growing medical tourism industry will also help sustain demand for innovative drugs, and Dubai's successful bid for the World Expo 2020 will help raise its profile in the global tourism market, with medical tourism included. Generic Drug Market Forecast Key View: Opportunities for generic drugmakers in the UAE will increase over the coming years. This will be driven by cost containment measures and strengthening domestic manufacturing capabilities. The UAE’s patented drug sector will remain attractive, despite the push towards generic drug prescription. Structural Trends Fitch Solutions, Inc. calculate that generic drug sales in the UAE totalled AED4.1bn (USD1.1mn) in 2019, corresponding to 18.9% of the total pharmaceutical market. Despite patented medicine expenditure surpassing this figure, sales of generic medicines are forecast to rise faster than sales of patented drugs, reflecting the need for cheaper medicines in the country. By 2024, Fitch Solutions, Inc. forecast the UAE's generic drug market to reach AED5.3bn (USD1.4bn), reflecting a five-year compound annual growth rate (CAGR) of 5.2% in local currency terms and in US dollar terms. Total spending on generic drugs by 2029 will reach AED6.7bn (USD1.8bn), which translates into a CAGR of 5.0%. This is the second fastest growth rate in the Middle East’s generic drug market, behind only Jordan. Fitch Solutions, Inc. expect actual volumes of generic drugs entering the UAE's pharmaceutical market to potentially rise even more dynamically as generic drugmakers boost production to meet the rising local demand in line with the increasing need to rationalise prescriptions. This will gradually erode patented medicines' market share over a multi-year time frame, challenging innovative drugmakers looking to expand their activities in the UAE. Robust growth opportunities exist in the generic medicines sub-sector. The UAE is focusing on cost containment and localised production. The robust local currency growth outlook for UAE's generic medicine market will be driven by plans to boost the local production and the rising popularity of generic drugs. The most recent ruling in Abu Dhabi will have positive ramifications for local generic drugmakers, with greater encouragement for the prescription and uptake of generic drugs. According to Mediclinic Middle East, 'the new ruling will encourage the use of generic drugs within the UAE and ultimately drive down medicine costs'. A representative from Aster Pharmacy noted that 'in addition to the price advantage, generic drugs are also more widely available as one drug may be manufactured by more than one company, as opposed to patented products which are manufactured by just one company'. Echoing these views, a representative from Julphar Pharmaceuticals commented that 'the new ruling could extend treatment options in the public health sector, where fixed budgets place limits on treatment. For consumers, more affordable prices will widen medical insurance cover and reduce out-of-pocket payments. Julphar is planning to launch 25 new products in the UAE in 2018 and covers a range of therapy areas, including diabetes, cardiology, gastrology, antibiotics and pulmonary care. Fitch Solutions, Inc. note that the full impact of the new ruling in Abu Dhabi on UAE generic

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drugmakers remains to be seen. The uptake of generic drugs by patients could be hindered by the preference for branded products given their perceived association with efficacy and value. This could pave the way for 'branded generic medicines' in the UAE over the coming years, with many drugmakers already employing this strategy in certain markets with a pre-existing preference for brand names. OTC Medicine Market Forecast Key View: The UAE has a strong preference for prescription medicines given their association with quality and the expansion of generic and innovative drugmakers. Despite the growing awareness of the benefits from OTC medicines, the sub-sector will continue to fall behind the prescription drug sector in terms of expenditure in the UAE, maintaining a relatively minor market share in value terms over the coming years. Structural Trends Fitch Solutions, Inc. calculate that OTC drug spending will rise from AED2.9bn (USD789mn) in 2019 to AED3.0bn (USD805mn) in 2020 and AED3.1bn (USD857mn) by 2024, equating to a compound annual growth rate (CAGR) of 1.7% in local currency and US dollar terms - considerably lower than the prescription drug sector. By 2029, OTC medicine sales will reach AED3.3bn (USD9.8mn), which equates to a local currency and US dollar CAGR of 1.4%. Over the extended period, OTC drug sales will represent a lower share of the overall market, falling from 13.4% in 2019 to 10.4% by 2029. The growing affluence of the UAE's inhabitants, including expatriates, coupled with a rapidly growing population should cause demand in the OTC sector to continue expanding. Growing awareness of consumer health will also have a positive impact, as will the expansion of pharmacy chains. The OTC sector is appealing as the government does not control the prices of drugs in the sector, allowing drugmakers to maximise their profits. This could lead to a rise in investment in consumer health, especially when one takes the recent price restrictions imposed on prescription medications into consideration. However, it could also lead to a backlash against high prices in more challenging economic times. Despite aggregate OTC medicine spending set to increase, the sector will continue to lag behind other market segments in the UAE. In particular, OTC medicine growth will be hindered by the fast-growing demand for prescription medicines among the population. Pharmaceutical Trade Forecast Key View: The government of the UAE will continue to promote and invest in local drug manufacturing in the Emirates. While this will bring positive results for the domestic pharmaceutical industry, the emirates will continue to rely on imports to meet its domestic demand for medicines. Generic drug self-sufficiency is considerably more achievable over the coming years, while the country's pre-existing preference for branded medicines - many of which can only be sourced from abroad - represents a long-term aspiration. Structural Trends Pharmaceutical exports and stood at AED5.6bn (USD1.5bn) and imports at AED15.9bn (USD4.3bn) in 2019. Fitch Solutions, Inc. expect exports to rise to AED6.4bn (USD1.7bn) in 2020 and AED10.7bn (USD2.9bn) in 2024 at a local currency compound annual growth rate (CAGR) of 13.8% and US dollar CAGR of 13.9%. Over the same time period, they forecast that pharmaceutical imports will increase to AED16.6bn (USD4.5bn) by 2020 and AED21.5bn (USD5.9bn) by 2024, at a CAGR of 6.3% in local currency and US dollar terms. As is the case with many Middle Eastern pharmaceutical markets, the UAE government will increasingly promote the local production of generic drugs as part of a strategy to decrease costs of medicines, and improve supply and distribution. Domestic manufacturers, such as Gulf Pharmaceutical Industries, are expanding across the country and are already exporting products across the Middle East and North Africa region. New contract manufacturers have recently joined Gulf Pharmaceutical Industries, including Neopharma and Globalpharma. However, local manufacturing capacity will likely not increase fast enough and the UAE's pharmaceutical trade balance will continue to widen. As such, the UAE will continue to rely on pharmaceutical imports, particularly innovative, high-value products. Fitch Solutions, Inc. note that in September 2018 the Saudi FDA temporarily suspended imports of drugs from the UAE’s Julphar, citing 'a lack of adherence to the principles of good pharmaceutical manufacturing' as the primary reason. Fitch Solutions, Inc. note that there are several key reasons for the wide pharmaceutical trade balance, including the fact that domestic drug firms focus on producing generic medicines, which limits revenues. Not all of them have secured Good Manufacturing Practice accreditation which, in turn, reduces export potential. Furthermore, the lack of R&D activity means that product portfolios lack diversity and innovation. Fitch Solutions, Inc. also believe that another area in need of urgent review is the lack of drug safety testing within

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the Emirates. While relying on internationally qualified medicines saves money on implementing safety protocols in the country, it paradoxically leaves the UAE reliant on more expensive US FDA-approved or European Medicines Agency-approved pharmaceuticals, which have to be imported. Nevertheless, news that the PhRMA plans to open its regional office in DuBiotech is positive and should help facilitate pharmaceutical imports. Regulatory Development The key regulatory authority in the UAE is the Ministry of Health (MoH), with which all products must be registered. The Pharmaceutical & Medicine Control Department is the main pharmaceutical regulatory division within the MoH. The health ministry regulates the supply of all drugs to public sector hospitals. Products with US, EU or Japanese approval should experience little difficulty in gaining access to the market. Compliance with international manufacturing standards is also recommended. Over the past few years, the UAE has registered a number of cutting-edge therapies. Regulators have approved new drugs for tumours, diabetes, high blood pressure, multiple sclerosis, allergies and arthritis. Of the approved drugs, the majority were innovative and some were biologic. A large number of generic medicines from national, Gulf and international factories have been sanctioned after extensive studies on their bioequivalence. In line with our view that healthcare reforms are increasingly popular as ways of optimising spending in the emerging markets, the UAE government is attempting to improve the country's healthcare sector with the long-term aim of boosting spending and efficiency. The need for a regulatory body to encompass the emirates is perhaps overdue, but the MoH has stated that its creation stems from new trends in medicines, which they believe refers to both the influx of generic drugs and the emerging biopharmaceutical sector. This reflects the Ministerial Decree 28 for 2018 concerning the registration of innovative medicines and orphan drugs. According to the decree, registration of drugs given the status of 'breakthrough' or 'orphan' are placed on a fast-track approval process to accelerate patient access to innovative treatments. The move to revise regulatory conditions is more likely to further incentivise multinational drugmakers to base their Middle Eastern operations in the UAE. The promotion of business-friendly areas has long been a priority for the region, as evidenced by the free zone and DuBiotech complex, with the Pharmaceutical Research and Manufacturers of America (which represents US pharmaceutical firms' interests) keen to join the complex, according to press reports. Pricing & Reimbursement Regime The MoH is responsible for setting medicine prices in the UAE. The Gulf Cooperation Council (GCC) orders medicines in bulk tenders, meeting annually to discuss medicine lists and as the region moves towards harmonisation of drug pricing. The UAE must play a larger role in these negotiations, particularly since it stands to gain considerably from lowering medicine prices. Similar to its emerging market peers, it should have a pro-generic import policy, as we note that significant cost savings can be made through the GCC body. The government has been keen to control pharmaceutical prices and has reduced margins for importers (from 20% to 15%) and pharmacies (from 24% to 18%), meaning that increasing prices have to some extent been balanced out and the overall pricing environment in the country is currently relatively contained. The increasing toughness of the pricing environment is based on the government's desire to balance concerns for 'affordable' healthcare, the sustainability of the domestic manufacturing sector and its international obligations to uphold patents and product quality. In September 2019, the UAE's MoH announced the latest round of annual price cuts to 410 locally produced and imported innovative and generic drugs in the country. While this will create challenges for innovative firms in the UAE, the country remains one of the more attractive destinations for multinational drugmakers in the region (see 'UAE To Remain Attractive To Drugmakers Despite Regular Drug Price Reductions', September 25). The range of reductions for products fell between 2-77%. This was followed in February 2020 by a price cut of more than 500 medicines for chronic diseases including diabetes, hypertension, cardiovascular, central nervous system and respiratory diseases as well as some paediatric problems (see 'Pharmaceutical Spending In The UAE Will Remain Robust Despite Risks From Price Cuts And Covid-19', March 9). Market Overview Fitch Solutions, Inc. note that favourable demographic and macroeconomic factors, such as a growing population, rising fiscal expenditure and strong real GDP growth, should facilitate the expansion of the UAE's

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pharmaceutical market. The UAE's pharmaceutical market reached a value of AED21.7bn (USD5.9bn) in 2019, accounting for only 1.4% of GDP or USD605 per capita. The market represents 38.6% of the total healthcare market in the UAE. Patented drugs make up the majority of total medicine sales with a 67.7% share of the market, followed by generic drugs at 18.9% of total drug sales, and OTC drugs accounting for the remainder 13.4%. The government is keen to diversify away from an oil-based economy and has pinpointed medical tourism as a potential area for growth. Dubai's successful bid to host the World Expo 2020 should also have a positive impact on the healthcare sector, as the emirate invests in infrastructure. In 2019, healthcare expenditure was worth AED56.2bn (USD15.3bn), representing 3.7% of GDP. Healthcare spending per capita was calculated to be USD1,566. The government contributed 72.4% of the total health expenditure, amounting to AED40.7bn (USD11.1bn) in 2019. The UAE's heaviest disease burdens include neuropsychiatric conditions and cardiovascular diseases. Heart disease is the leading cause of death, accounting for around 22% of all mortalities, and strokes account for 7%. The UAE's drug market is dominated overwhelmingly in value terms by foreign multinationals. Most major research-based firms have a long-standing presence in the UAE, either via contract manufacturing or local distribution arrangements. Prominent multinationals include Pfizer, Novartis and GlaxoSmithKline. The domestic sector is small, and the local manufacturing industry's clear leader is Gulf Pharmaceutical Industries. New contract manufacturers have recently joined Gulf Pharmaceutical Industries, including Neopharma, Globalpharma and speciality generic injectables manufacturer Gulf Inject. Healthcare Sector The UAE boasts strong and high-quality healthcare provision, with the government promising further investment in such resources. A report by the Dubai Chamber of Commerce and Industry has confirmed our belief that the UAE's healthcare sector should experience strong growth over the next five years. To this end, the UAE is building multiple healthcare facilities, expecting demand for healthcare to more than double by 2025, according to a report by Abraaj Capital. A growing population in terms of size, wealth and life expectancy has fuelled a rapid rise in demand for healthcare in recent years. Estimates suggest that there is now a shortage of almost 2,000 hospital beds across the country, despite an increase of around 30% in the number of beds in recent years. Consequently, a number of companies are taking interest in various projects available in the country, complementing some 700 firms already present in various pharmaceutical and healthcare fields. These include a pan-Gulf Cooperation Council (GCC) private equity fund manager, which launched its AED3.67bn (USD1bn) Fund III, in order to boost its investment in the healthcare sector. Similarly, Mubadala Healthcare created a private healthcare infrastructure in the emirate in collaboration with international specialist hospitals, including Cleveland Clinic, Imperial College London and Siemens Medical Solutions. The market share held by the private healthcare sector has risen significantly in recent years. The growth of private healthcare insurance, patient fees and co-payments has substantially boosted overall health spending. Public-private partnerships will continue to play an important role in driving growth in the UAE's healthcare sector given their role in alleviating some of the financial burdens on the government. The major players in the private healthcare market in the UAE are Al-Noor Medical Company, al-Zahra Group, Belhoul Lifecare, Emirates Healthcare, Gulf Healthcare International, Gulf Medical Projects Company, Zulekha Hospital, Saudi German Hospital Group and DM Healthcare (Aster). Competitive Landscape The UAE's pharmaceutical market is dominated by foreign multinationals. Many multinationals are expanding into the UAE and using the Emirates as a manufacturing base for regional operations, in view of its viable local market and import/export potential. The UAE has also continued to improve its business environment and has made concerted efforts to maintain and increase foreign direct investment into manufacturing and diversifying the economy. In terms of the pharmaceutical sector, this has been relatively successful with the creation of Dubai Science Park, Dubai Logistics District, Jebel Ali Free Zone and the ongoing construction of additional health cities and complexes. Healthcare reforms in the region have also raised the potential for higher per capita spending on innovative medicines. Domestic Industry

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Manufacturing capabilities remain somewhat limited in the Middle East and North Africa (MENA) when compared to developed markets - a characteristic of the UAE's market, which has few sizeable domestic pharmaceuticals producers. However, in recent years, the UAE has taken steps towards establishing the country as a drug manufacturing hub. Established in 2016, the Dubai Industrial Strategy 2030 has identified the pharmaceuticals and medical equipment sector as one of six strategically important sectors for Dubai’s economy. The strategy aims to reduce the country’s reliance on the imports of pharmaceutical products and transform Dubai into a preferred manufacturing platform for global players. The top pharmaceutical manufacturer is Julphar which is increasingly focused on exports given the limited size of the domestic market. Julphar states that 90% of its products are exported outside of the UAE. It is also boosting its manufacturing capacity in other markets with 16 internationally certified facilities, namely in Saudi Arabia, Ethiopia and Algeria. Other companies - such as Al Hayat Pharmaceuticals, Pharmax, Globalpharma, Medpharma and Neopharma - are active in providing in-licensing and other services to foreign manufacturers, with domestic production capacities likely to be boosted in the coming years by the government's focus on the development of biotechnology and the rising demand for medicines. A significant proportion of MENA production consists of contract manufacturing (outsourced manufacturing from multinationals), licensed manufacturing (when a local firm manufactures and also markets a branded drug under the trademark of a multinational) and generic manufacturing (when a firm produces its own version of an off-patent drug). Of these, the last option is the most lucrative, because generic drugs have the highest margins. Local companies are looking abroad for investment opportunities. Indian firm Hetero Labs' strategy has been attempting to create a partnership with the UAE's Neopharma as a means of establishing manufacturing facilities in the UAE and introducing its generic drug portfolio. The news that the Pharmaceutical Research and Manufacturers of America plans to open its regional office in Dubai is positive, and should facilitate trade with US pharmaceutical firms. However, local players still lack a sufficient R&D base and adequate manufacturing capabilities. Consequently, Arab drugmakers for the most part are unable to develop their own drugs or patents. Generic Drugmakers The UAE government will increasingly promote the local production of generic drugs as part of a strategy to decrease costs of medicines and improve supply and distribution. Around 90% of pharmaceutical imports into the country are generic drugs, constituting a significant percentage that pharmaceutical companies aim to target to shorten their supply chain. In December 2018, Pharmax opened an AED125mn plant at Dubai Science Park in Al Barsha. The plant is the companies third manufacturing facility in Dubai, with an annual production capacity of over 200mn tablet and capsule dosage forms. From the facility, the company stated that it would first begin producing drugs for cardiovascular disease, hypertension, peptic ulcer, diabetes and medicines for the central nervous system for psychiatry and neurology. The Phase 2 expansion, which is likely in 2020, will see the plant’s production capacity increased fourfold and additional product lines added, including injectables and inhalers. As of February 2019, there were 19 factories producing 1,500 different types of medication located at Dubai Science Park. The Ministry of Health stated that there were a further 17 factories in the pipeline, with 36 pharmaceutical factories expected by 2021. Pharmaceutical Distribution The UAE's retail landscape - previously relatively fragmented, reflecting the situation across much of the Middle East - has started to show evidence of consolidation. The growth of chain pharmacies in the region has been limited by differing regulations across states. Within the other Gulf Cooperation Council states, pharmacy chains are common. Sources: Information extracts from subscriptions through Fitch Solutions, http://www.fitchsolutions.com/ For subscriptions to above market intelligence, please contact: Marikit Cabrera, Account Manager, Fitch Solutions, Office 1807, 18th Floor Al-Thuraya Tower 1, Dubai Media City, Dubai, UAE Direct: +971 4 439 2301; Mobile: +971 56 942 8833; marikitcabrera@fitchsolutions.com ; https://www.fitchsolutions.com/

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